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Low CAT Loss Aids RenaissanceRe's 1Q - Analyst Blog

RenaissanceRe Holdings Ltd.
(
RNR
) reported first-quarter 2012 operating earnings per share of
$2.98, way ahead of the Zacks Consensus Estimate of $2.51. Results
also compare favorably with operating loss of $4.59 per share in
the year-ago quarter.

Operating earnings for the quarter came in at $155.5.0 million
compared with an operating loss of $242.9 million in the year-ago
quarter. Besides, net income improved drastically to $201.4 million
or $3.88 per share from a net loss of $248.0 million or $4.69 per
share in the prior-year quarter.

The improvement in the results were primarily aided by lower
catastrophe (CAT) losses in the reported quarter compared with the
prior-year quarter, which suffered huge CAT losses due to floods in
Australia and earthquakes in Japan and New Zealand. Lower expenses
and higher premiums and investment income also contributed to the
earnings growth.

RenaissanceRe posted total revenue of $356.5 million, down 8%
year over year from $387.7 million in the first quarter of 2011.
However, total revenue surpassed the Zacks Consensus Estimate of
$300 million.

Alongside, gross premiums improved 8.8% year over year to $664.2
million, spurred by higher risk-adjusted pricing in the catastrophe
unit during the January 2012 renewals as well as premium growth in
the Lloyd's segment.

Meanwhile, underwriting income surged to $196.6 million from a
loss of $397.2 million in the year-ago quarter. The considerable
improvement was mainly due to floods in Australia and New Zealand
and Tohoku earthquakes last year, which led to high catastrophe
losses in the prior-year quarter.

RenaissanceRe reported total investment income (sum of net
investment income, net realized and unrealized gains on investments
and net other-than-temporary impairments) of $113.7 million in the
quarter, against $55.3 million in the year-ago quarter. The
improvement was on the back of higher returns on the fixed maturity
investment portfolio due to tightening credit spreads during the
reported quarter, along with higher returns on the private equity
investment portfolio.

Moreover, total expenses of RenaissanceRe plummeted 87% to $92.6
million from $711.0 million in the prior-year quarter.
Additionally, income tax benefit declined to $37 million from $52
million in the year-ago quarter.

Segment Results

Reinsurance
segment reported gross premiums of $609.8 million, up 6.3% from
$573.7 million in the prior-year quarter. Underwriting income came
in at $194.1 million compared with underwriting loss of $368.1
million in the first quarter of 2011, while the combined ratio
nosedived to 23.5% from 227.2%.

Lloyd's
segment's gross premium came in at $54.8 million, surging 49.7%
from $36.6 million in the year-ago quarter. Underwriting income was
$1.1 million, against underwriting loss of $26.3 million in the
year-ago quarter. Combined ratio plunged to 95.6% from 267.7% in
the prior-year quarter.

Insurance
segment's underwriting income was $1.46 million as opposed to
underwriting loss of $2.75 million in the year-ago quarter.

Financial Position

RenaissanceRe exited the reported quarter with total assets of
$8.35 billion, up from $7.74 billion as of December 31, 2011.
Long-term debt totaled $352.0 million, down from $353.6 million at
the end of 2011.

Meanwhile, cash and cash equivalents stood at $261.0 million, up
from $217.0 million as of December 31, 2011. Shareholders' equity
totaled $3.8 million compared with $3.6 billion at 2011 end.

As of March 31, 2012, RenaissanceRe's annualized return on
average common equity (ROCE) was 25.6%, improving substantially
from negative 31.3% as of March 31, 2011.

Stock Repurchase Update

During the reported quarter, RenaissanceRe repurchased 51,000
shares at an average price of $71.81, totaling $3.6 million.

Our Take

RenaissanceRe's operating results for the reported quarter
improved significantly owing to higher underwriting income, arising
from lack of catastrophic events in the quarter. The company
generally faces significant challenges due to weather-related
events as well as high competition in the catastrophe insurance and
reinsurance segments.

While premiums and investment income exhibited growth in the
reported quarter, expenses also declined substantially, thereby
boosting the bottom line. Moreover, the company's financial
position strengthened with improved financial leverage, higher cash
balance and increased ROCE.

One of RenaissanceRe's competitors,
PartnerRe Ltd.
(
PRE
) reported first-quarter 2012 operating earnings per share of
$2.76, which significantly surpassed the Zacks Consensus Estimate
of $2.06 and rebounded from the year-ago loss of $10.82. As a
result, operating net income soared to $181.7 million from a hefty
loss of $735.6 million in the prior-year quarter.

Another peer,
XL Group plc
(
XL
), will report its first-quarter 2012 financial results on May 8,
2012.

Currently, RenaissanceRe carries a Zacks #3 Rank, which
translates into a short-term 'Hold' rating. However, considering
the fundamentals, we maintain our long-term 'Neutral'
recommendation on the shares.

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